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  • Speaker

    Marcus Gassmann is Senior Business Expert Capital Markets at Union Investment. Marcus has a 25 years work experience in banking and asset management focusing on analysis and development of investment and trading workflows for different asset classes.

    Marcus Gassmann
    Senior Business Expert Capital Markets at Union Investment
  • Speaker

    Benjamin Schaub is Chief Digital Officer at and consults financial institutions on digital assets and blockchain technology. Through his previous position as a research assistant at the Frankfurt School Blockchain Center, he has several years of experience in integrating blockchain use cases in the financial industry. His focus areas include building business models for crypto assets, tokenized securities, and fund units.

    Benjamin Schaub
    Chief Digital Officer at
  • Host

    Seamus has extensive domain expertise in investment banking, wealth management, commodities and crypto markets that spans market structure, regulations and technology. He spent 20 years building and managing trading operations across all the global financial centres with JP Morgan, Deutsche Bank, Barclays and Bank of America Merrill Lynch.

    Seamus Donoghue
    Chief Growth Officer

Full transcript

*Disclaimer: The accuracy of this transcript is not guaranteed. This is not investment advice, and any opinions expressed here are the sole opinions of the individuals, not of the institutions they represent.

[00:00:11] Seamus: Welcome to the 36th episode of Metaco Talks. Today is a special episode as we’re hosting two guests, so changing our format. Marcus Gassmann, Senior Business Expert for Capital Markets, Union Investment, one of the largest asset management companies in Germany with more than 400 billion Euro assets under management, and also many referred to as one of the most crypto friendly asset management firms in the market, will be joining us. Marcus has 25 years worth of work experience of banking asset management, focusing on analysis and development of investment and trading workflows for different asset classes.

In addition, we have Benjamin Schaub, Chief Digital Officer at, a highly specialized consultancy, which supports financial institutions in the strategy, planning, implementation, and integration of use cases around digital assets and blockchain. His focus areas include building business models for crypto assets, tokenized securities, and fund units.

Gentlemen, welcome to Metaco Talks. I think this is exciting to have a different format, and another thing is traditionally we have a lot of discussions with the sell-side, and it’s nice to get a perspective from the buy-side for a change. I think this is particularly relevant given how, as you said, being so crypto friendly, you have views and more advanced knowledge in this space. I really want to dive into that.

Marcus, are you able to give us a quick introduction to Union Investment and how your firm fits into the German landscape? You have deep ties across the value chain there.

[00:01:42] Marcus: Yes, Seamus. I would love to do that and to give you an overview about Union Investment and what we do. Union Investment was established in 1956. We have about 4,300 employees. We have 5.8 million retail and institutional clients, and with about 413 billion Euro assets under management. We are one of Germany’s largest asset management companies with a retail market share of about 23% at the moment.

Union is a full-service provider. That means we are covering all asset classes. We are covering equities, fixed income products, commodities, multi-asset solutions, real estate. We are part of the Cooperative Banking group in Germany. It is our parent company, and we as Union Investment are the asset management service provider for more than 770 Cooperative Banks in Germany, as well as other institutional clients outside the Cooperative banking sector.

[00:02:57] Seamus: That’s a big presence in the market. The earlier reference to being one of the most crypto friendly asset managers, it would be great to understand why you got that moniker. Can you go dive into a bit of what you’ve been up to in the crypto space so far?

[00:03:14] Marcus: Yeah, sure. You said we are one of the most crypto friendly asset management firms. I would prefer to say we are more innovation friendly and technology open than rather crypto friendly.

We always try to analyze new technologies, to explore the value in use for our products and for our clients. We always do this exploration more with a critical view than with blind enthusiasm, because we want to avoid to be part of a hype. We don’t want to be a crypto or DLT hotline. We want to be more let’s say an opportunistic researcher of this new technology and this new asset class. From our understanding, it’s important and essential for survival in our industry to understand new technologies and instruments. It’s important that our clients have a competent counterpart to discuss upcoming questions and to get advice on new asset classes and new technologies that impact their business.

With that understanding we, we started in 2021 with the build-up of different technological and asset class specific skills at Union Investment, and together with DZ BANK and some other partners of the Cooperative Banking group. We set up, for example, a company-wide project to identify the impact of the new technology and the asset class to our existing investment process. We organized some POCs to test and to prove our theoretical knowledge and our theoretical assumptions. Our starting point in 2021 was that we bought a Bitcoin exchange-traded node, so a very small starting point, with a small exposure to get just a better understanding of the impact of cryptocurrencies to a fund with traditional assets.

We also bought already some tokenized bonds to get a better understanding of what tokenization means for our technological and trading infrastructure. Last year we set up a blockchain infrastructure and designed a smart contract-based OTC derivative instrument together with the DZ BANK, to learn more about the efficiency of smart contract-based solutions.

I would say we are in a phase where we try to find out what makes sense perspectively for our products and for our clients within the existing and given regulatory framework. But back to your question, we see there are a few interesting opportunities in the DLT ecosystem, but we want to be 100% sure that we can create additional value rather than just to be part of a hype community.

[00:06:29] Seamus: Are there particular use cases out of these learnings that you’re more excited than others? Is there particular use cases you expect, even though it may be at early stage, that might have more promise?

[00:06:40] Marcus: The use cases we made, they cover completely different aspects. We had use cases on the technological side, we had use cases on the asset side, and everyone of the use cases gave us additional knowledge. Everything was interesting. Maybe somewhere we found out that there is more efficiency effects than others. But I would not say that one of these use cases was more interesting than another. I think it’s important to start with little steps, and then it can become more and more complicated. I would say the last use cases we created, maybe they are the most interesting ones because they are the most complicated ones. But every step was very interesting for us, and we had a very good learning curve from that.

[00:07:36] Seamus: No doubt learning is part of the journey here, because there are new risks, new types of, new types of exposures, new processes that need to be adapted. I don’t want to ignore you Benjamin, so why don’t we come over to you? Can you tell us a bit about Intas and your relationship with Union Investment. What we’d also like to dig into is what we should know about the regulatory framework that’s basically behind some of this research and foundational learnings that that Marcus has mentioned.

[00:08:04] Benjamin: Sure. As you outlined in the intro, we are a highly specialized consultancy for digital assets and blockchain implementation. We are currently supporting Union Investment in the, I would call it exploration phase and the upcoming regulatory regimes, what potentials or opportunities are there from the asset management perspective.

The regulatory framework you just mentioned, I think we have to look at several aspects here. First, when we talk about the German regulation and we talk about crypto assets as asset class, then it is very important to stress that crypto assets have been included as financial instrument in the German Banking Act. Also, crypto custody business is a financial service, which has been added to the German Banking Act. This means we have a really strong regulatory framework for crypto as asset class in Germany.

Also, looking a bit to the direction of asset managers, we have the Fund Jurisdiction Act, which allows to add up to 20% of the net asset value of an open-ended domestic special alternative investment fund with fixed terms into crypto assets. In general, we have the basis to trade and do custody and so on, but also to really get exposure into a very well established asset class like the alternative investment funds I just mentioned.

Then apart from crypto as asset class in Germany, we have the Electronic Securities Act, which allows to tokenize bearer instruments at the moment. It is to be expected that this law will be extended this year, so stocks will also be possible to be tokenized going forward in Germany. Then in conjunction with the Electronic Securities Act, we have the Crypto Fund Regulation, which allows the tokenization of the investment fund as such. The fund unit we are talking about is also now possible to tokenize it. This is Germany.

When we talk about Europe and at the European level, I think there are two regulations worth mentioning. One is also referring to crypto assets, the Markets and Crypto Assets Regulation. This should apply early in 2023. It expected to start now in the upcoming weeks. Then after a transition phase of 18 months, it will come into force. However, what it will create is a harmonized and standardized framework for the whole European Union. This is very important because as just mentioned, we have the crypto custody business, for example, in Germany. It wasn’t possible before to passport it in other jurisdiction.

Now we will get this harmonized or level playing field in the European Union. You can offer services throughout European Union. I think this is a very strong signal for crypto as an asset class on the European level.

Also, talking about traditional financial instruments, we have the DLT pilot regime, which will actually start next week. This again targets financial instruments as we know them under MFIs, stocks, bonds, use funds, and so on. There will be certain thresholds applying in terms of issuance volume, because the DLT pilot regime is a sandbox. It’s basically something where you can try out new things. What we think is extremely important and interesting here to observe is that it also paves the way that some of the financial institutions that we know might become obsolete, especially central securities depositories. In this case, and what we also see here as a foundation for blockchain or DLT going forward, that in the pilot regime for the first time we have the possibility to combine operations that were usually performed by a multi trading facility: so trading, and on the other hand side from central securities depositories, settlement.

This means that in the pilot regime, we also see for this traditional financial instrument, that DLT is the core infrastructure for the issuance, trading and settlement. I think the bottom line then is that we see, okay, we have strong regulation for crypto assets, Germany particular upcoming in the European Union, but it must be clear that typical or traditional financial instruments will become more and more tokenized and therefore blockchain will be the key infrastructure emerging in the upcoming years.

[00:13:15] Seamus: The landscape you’re painting is one of very clearly defined regulation. Clearly Germany has been at the forefront of defining that clarity, and now EU is rounding out that regulation. It’s a very refreshing view given what we hear out of North America, where the ambiguity and potentially the resistance for the administration is slowing banks down from publicly building.

I’d love to dive into one of the comments you made around, potentially some of the market infrastructure being replaced. Things like the Electronic Securities Act, how will that impact the CSDs? Will CSDs live in parallel, or as you say, will these infrastructures be completely replaced? How is that going to evolve?

[00:14:02] Benjamin: I think the more important part is, as you just referred to, we have the now the regulatory framework to definitely replace those intermediaries. This does not mean that they will go away. Of course, they can also jump on the technology. They can do it regarding the regulation in Germany, they could also offer as a CSD their services regarding the DLT pilot regime. If they embrace the technology, they might even get stronger.

This is not that easy to say, but I think important, that it is now possible that you could disrupt central security depository. You could also disrupt a custodian bank, and from the asset manager perspective, get an investor to buy an investment fund directly from the asset manager without a custodian bank. This for me means that there are services currently being provided by CSDs, custodian banks, and so on, these services don’t necessarily go away, but it shifts the role model that we know from traditional finance. This means that either established financial institutions can then offer such services, or new market entrants could potentially do this. But it also allows if you change the role models and the services that can attract new sources for revenue going forward.

Diving a bit deeper into the asset manager perspective, what we can here see is that once you leverage blockchain technology, then you can have some quick wins by tokenizing an investment fund, for example. There are processes like calculation of tax figures, commission calculation, trailer fees calculation, and this is quite easy to automate once you have a digital and blockchain based process. This is why we think the likelihood of implementation is increasing going forward, because you can realize these quick wins. It targets core businesses, it targets existing businesses. It is not something that you have to build from scratch.

Also worth mentioning is the distribution angle. A lot of asset managers going forward think about how will they be able to distribute their funds in the future, how to attract the younger generations. Again, when you use blockchain and tokenize the instrument as such, you have new possibilities. You can potentially connect to digital trading venues, and so on.

Going back to your question, when we talk about the infrastructure and roles, and then custodians, which are very important, I think we will see the emergence of another core blockchain infrastructure. The first one is already here. It’s crypto custody or key management. Very important in crypto, we know that, but this will get more and more important now when we talk about traditional financial instruments. Because once we tokenize them, we have to take care of the private key management, how are they being stored, and so on. This is definitely something where custodians will play a big role in the future.

Also we have been talking about the traditional financial instruments, the issuance of the traditional financial instruments. This also means that we have to keep a shareholder registry on a blockchain. The who owns what part is from our opinion, the second core infrastructure, the key management part and the shareholder registry on chain. This is then, as the question was something which CSDs could provide, it’s in their nature. But also when we talk about the German regulation, also on a side note the Luxembourg regulation, other players can provide the services as well. There’s definitely competition coming up in this market in the future.

[00:18:20] Seamus: Thanks, Benjamin. Potentially a pretty profound change in the landscape, both from, as you say, new emergent players and change in existing incumbents.

Marcus, it would be great to get your perspective from the asset management side, how an asset manager will evolve given this regulatory framework and this new digital asset classes. How’s this going to impact the investment process?

[00:18:43] Marcus: I think that the basic role of an asset manager as a fiduciary fund manager will not change significantly. But I think there are two components that will change the way an asset manager will do the business in future. From my perspective, there is a main driver, that’s the new DLT based technology. The other driver is the development of new asset classes like cryptocurrencies.

I think the technology part is the more disruptive one for our industry. The technology part will change our existing infrastructure. Blockchain technology and DLT applications will impact our existing IT landscape significantly. I think it’ll change our existing workflows. We see smart contract-based processes that will increase the level of automation and digitalization. It’s a booster for digitalizations, and it’ll replace a lot of manual workflows in our industry. As Benjamin just mentioned, the automation of a lot of administration workflows and administration tasks by using smart contract solutions, for example.

I think it’ll change our instrument portfolio. We’ll see more tokenization of already existing instruments. That will have a significant impact on trading and settlement efficiency of these instruments. We will see real time settlement, atomic settlement, and things like that. It’ll change our legal framework. Benjamin mentioned that as well. Our legal understanding, certificate based securities will be replaced by tokenized securities. That’s something completely new and something completely different, if you have a look at legal frameworks and legal documents, for example.

It will change organizational setups. There will be new regulatory roles. Benjamin also explained that like in Germany, the crypto web, that is something we don’t know at the moment. At the moment we have a very, very simple structure in the asset management industry, with client asset management company and custodian. That will be more complex in future.

It will change how we interact with our clients, especially younger clients. It will have a change of our client structure in the next few years. That requires that we change the way we interact with especially these younger clients. That’s the technology part.

On the asset side, we see the appearance of new asset classes like cryptocurrencies. The first question for every asset manager is if he wants to integrate this new asset class into his instrument portfolio. That’s a strategic decision. The integration of an asset class, and that’s the operational part, into an existing investment process, that’s not a daily business. A new asset class requires significant enhancements and implementations of new skills, new tools, new techniques.

I’ll give you an example. The first step of a standard investment process is normally research. If we take research, the implementation of cryptocurrency requires new external research providers, the design of internal analytic tools and models, for example for on chain analytics, flow models, correlation, sentiment, and so on. These models require different asset class specific raw data. You have to think about the integration into your asset allocation workflow. You should think about your ESG activities and the fit into your ESG strategy. You see that’s a very comprehensive and complicated task to integrate that.

It’s more than just the additional coverage of a new asset class. It’s more the integration into an existing investment process to make sure that this new asset class will fit into your individual strategic and operational setup.

[00:23:24] Seamus: If I contextualize things in the way you described it, technology and asset classes, from the point of view of as the new asset class is crypto, it’s still a relatively small asset class. You’re talking about a trillion dollar market cap, what I observe what’s in native crypto assets right now. Whereas capital markets and let’s say fiat currency, is somewhere in the order of 700 to 800 trillion.

Is the opportunity here about new assets or is it really about the technology addressing costs and efficiencies and potentially safety given your intermediaries potentially as well?

[00:24:00] Marcus: You are right, that the cryptocurrencies is relatively small if you compare it with other established asset classes. But other asset classes started with a very small size as well, 20 to 30 years ago. I think you have to take it seriously.

Some asset managers say it’s not an own asset class at the moment. I agree with that. It’s not on the same level than equities of fixed income products, it is completely different.

You need your own models, you need your own infrastructure and things like that. I think the features that differentiate cryptocurrencies from existing traditional asset classes, that is significant. That is one of the reasons why we set at Union Investment, it has not the size of an asset class and it has not the volume and the trading volume of an asset class, but it’s so completely different that we just define it as a new asset class because we have to implement a new investment process.

I think that is the leading factor for us, new investment process, new asset class. I think it will evolve. The volume will increase. Maybe in 5, 8, 10 years, there will be no discussion about if this is a separate asset class or something like that.

[00:25:33] Seamus: Indeed. Benjamin, you want to touch on this? What do you view as the benefits for asset managers and custodians in this space?

[00:25:41] Benjamin: I think the question here is, as Marcus mentioned, the regulatory framework basically says we have from an asset management perspective two angles. One is the investment fund as such, and all the related processes. On the other hand, we have the assets that will be bought into a fund.

Both as such, interesting angles. But in the beginning, they are more angles in terms of learning. What does this mean for me? Where do I buy my crypto assets or other tokenized assets? What is the target operating model? In this regulatory setup of an investment fund, you have your processes with custodians, or in Germany depositories. You simply have to make sure that this is going the right way. Regulatory is mandatory, right? This means you can learn on your own from the asset management perspective, but you have your counterparts, they have to learn with you so that you can handle it.

We observed very interesting results, or maybe sometimes subtleties that are still important. For example if you want to buy Bitcoin and we forget about the whole target operating model, where to buy and so on, then you have topics regarding your aesthetic or master data. There is no issuer of a Bitcoin, this is a data field which is empty. Then you have to look at your IT infrastructure. Is it a mandatory field for other IT applications in the whole architecture? If it is, you have to maybe create some rules and exceptions that this data can flow through the system.

It is quite challenging, but, this is also the important part, given the regulatory framework it’ll definitely come. You need to know your stuff. It’s not necessarily only something I would say regarding crypto assets, because when we then see tokenized security on maybe the Ethereum blockchain, you will have other topics regarding the data. You might have a new data field which says, “Hey, I’m a stock, I’m tokenized on Ethereum or on Polygon, or wherever.” This is also something in particular where you don’t have to see your existing IT infrastructure, are you handled to deal with it, and so on.

[00:28:22] Seamus: It’s interesting listening to both of you. We as a company used to always push, particularly a couple years ago when everyone was building around cryptocurrencies, building infrastructure for cryptocurrencies and you get tokenization for free. Now what we’re basically saying is there’s a lot of opportunity learning around tokenization efficiencies, different reduced intermediation, et cetera. But longer term, there’s a huge opportunity in the native cryptocurrency space, so that those learnings will apply to that asset class and grow dramatically in the future. Very interesting turn of events, but you do need that foundational infrastructure.

Marcus, what is the synergy between tokenizing the underlying assets and the fund unit itself?

[00:29:03] Marcus: I think every single step on asset and on fund level will imply a certain efficiency effect, like improved time to market, reduction of cost and complexity.

I think we are talking about a long roadmap. At the end of the roadmap we will have the synergy effect, the full synergy effect. What we do at the moment, we pick up single parts of that roadmap and try to realize it. For example, the tokenization of a fund. But every step from my perspective, is just a milestone on the roadmap. The final stage of expansion is the tokenized fund with fully tokenized assets: tokenized securities, derivatives and tokenized cash. That is something we will have maybe in between 5 to 8 years if CBDC currencies are allowed and can be used in funds and things like that.

With this final development stage, we will have then realtime fund transactions, atomic settlement of fund assets, real-time NAV calculations, wallet settlement, and smart contract based workflow automation. I think that together, the tokenized fund with the tokenized assets means the maximum leverage of efficiency. That’s the synergy effect that we will hopefully have in a few years.

[00:30:48] Seamus: That is very good detail. If we zoom out, what are the next stages for the evolution of this synergy? As you say, we started from traditional assets and funds, we tokenized some assets. What next?

[00:31:00] Marcus: What’s next? I think the question is not what’s next. The good thing in our situation is that we can do a lot of things in parallel. There is no dependency that we have to tokenize the fund first and then to tokenize the assets. We can do it in parallel. We can have a tokenized fund with traditional assets.

We can have a tokenized fund where some of the assets are traditional and some are tokenized. We can have a tokenized fund with fully tokenized assets, and vice versa. We can have a traditional fund with traditional assets, with tokenized assets, with a mixture of both. I think that gives us a lot of flexibility on the implementation roadmap that we can do a few things in parallel. But the most important thing is, what does the regulator allow us to do? That is at the moment the part where we sometimes have to wait.

The CBDC currencies is a very good example for that. If you have a look on the ECB roadmap for, for CBDC currencies, you will see that the ECB will allow CBDC currencies in 2027. Until 2027, we will not have a tokenized fund with fully tokenized assets. We have a legal framework, but within this given legal framework we are very flexible and we can mix up different of these milestones, and that gives us a lot of flexibility.

[00:32:52] Seamus: This flexibility and opportunity to innovate sounds like it’s competitive advantage. How does the current competitiveness of German and European markets compare when it comes to crypto opportunities for established financial institutions when we compare it to other regions like the US or APAC? Does Europe have an advantage here? Will it maintain that advantage?

[00:33:13] Marcus: My personal opinion is that we have an excellent regulatory basis in Europe and in Germany. Benjamin mentioned and gave us some examples before. I think we are far ahead of the curve compared with other countries. Even if our regulation is not perfect yet, we see on the one hand a very white regulation, and on the other hand a significant degree of regulation that covers completely different aspects of the capital markets like trading, distribution, client protection, cybersecurity, and so on.

What I also see is a global trend to define regulatory standards. I think most countries realize that regulatory clarity is an absolutely must have. We see, for example, the G20 discussion to define a global regulatory framework to create a global level playing field for that. We see a lot of decentralized activities. We see activities in the United States; they announced to strengthen the regulatory basis this year. UK wants to set up a comprehensive regulatory framework in 2023. But certainly Europe is from a regulatory perspective at the moment a pioneer and the leader, concerning crypto regulation. That regulation could be the basis for a global regulatory standard.

Back to your question, I see Europe at the moment from a competitive perspective. I see Europe in a poll position with a significant competitive edge at the moment. But I also see other countries gaining on us. I think the factor of success will be that we can keep up our competitive edge with an innovation friendly framework that allows this new technology and asset class to evolve. From my perspective, I see the background for this in Europe very positive.

[00:35:27] Seamus: I think you’ve touched on some very interesting things, clarity on regulation and standards. We see that as driving innovation in the space, enabling firms like Union Investment and the banking sector to move. Clearly you guys are embracing this opportunity to innovate and move forward.

Benjamin, what other projects are you working on that you think we should be aware of given the opportunity to discuss it here?

[00:35:48] Benjamin: I think there we have to touch base on the basic infrastructure we mentioned before. Definitely custody, the key management part that we mentioned before. Currently biggest German players are currently setting it up, luckily for Metaco with some of your help. When we talk about the DZ BANK, DekaBank, DWP Bank, those are major players in Germany. They are all setting up custody infrastructure.

This means that from a market perspective, we expect them to be ready for whatever asset class they want to custody for later this year, probably at the beginning of next year.

Regarding the asset classes, just a comment that some of those players are open to crypto from a political point of view right now. Others may be not. This I would say it’s not too important at the moment, because as I said, it’s a basic infrastructure. What we personally believe is that once the markets as such change and go in a better direction as lately, then we will see a lot of demand, especially in terms of crypto assets.

This is clear given now what’s happening in Germany. For the first time a huge customer base will have access to this asset class, which was not able before to buy and hold crypto assets. I think this is very important. We have other players building up the infrastructure, I also mentioned before. The crypto registry, service security registry service, this is a license now available in Germany. I think this will also apply. We mentioned the DLT pilot regime; this is the shareholder registry on DLT. Some of the players are doing this in Germany as well. This is also interesting.

From our perspective, we are currently working on several projects where it’s really about the tokenization of the traditional investment fund as such, the fund unit as they are called. Here, we from a consulting perspective see a lot of potential in terms of movement for real tokenization in the market, because in the European Union we now have the biggest fund jurisdiction with Germany and Luxembourg, which allow to put pretty much every fund type there is on a DLT infrastructure. Therefore we believe that we will see here a lot of movement, and particularly from the industry perspective we are working on a project where we will see from our perspective the first tokenized investment fund transaction in Q2 this year. Probably the first token investment fund with a real transaction in the world. I’m not sure of that, but it could be.

As I mentioned before, I think we will see more implementations coming up here because we have huge opportunities regarding cost reduction, because especially in Germany, we have the CSD based market, we have a high cost infrastructure. This now for the first time, sees any competition at all. We expect movement there, definitely, and new services being provided, not in five years but starting this year and probably in the next year.

[00:39:41] Seamus: I think that’s a great summary. You have the regulatory clarity, you’ve got a great regulatory roadmap both in Germany and EU, and firms are investing in foundational tech to take advantage of these cost efficiencies, and as Marcus said, be in the right position to capitalize on this emergent asset class.

Marcus, Benjamin, it was great having you with us. Thanks for your time today. Thanks for sharing your very useful and detailed insights. It’s been enlightening. Gentlemen, you have leaves rolled up, more work to do, but thank you very much for sharing that with us today and look forward to speaking again.

[00:40:16] Benjamin: Thanks, Seamus.

[00:40:19] Seamus: Thanks. To our guests, thanks for joining. We hope you enjoyed this episode. Until next time, don’t forget, we’ll upload the recording and script to today’s episode in, as always. Till next time, thank you.